The Government is weighing up potential reforms to the way capital gains tax (CGT) is applied to property.
Reports suggest one option under discussion is whether to alter the generous tax treatment of primary residences, particularly those at the higher end of the housing market.
At present, private residence relief means homeowners do not pay CGT on the sale of their main home, regardless of the level of gain.
How private residence relief works
In the UK, CGT is charged on the profit made when selling certain assets such as second homes, investment properties, or shares. The current rate can be up to 28% on residential property gains. However, an exemption applies to a person’s main home, known as ‘private residence relief’.
This means if you live in a property as your only or main home throughout your ownership, you do not pay CGT when you sell it. The relief can also apply in cases where you have periods of absence, provided certain conditions are met, or if you use part of your home exclusively for business.
For most people, this makes their main home a uniquely tax-advantaged asset. It is this special treatment—particularly for homes worth millions—that some in Government now suggest may no longer be sustainable.
Private residence relief differs from the inheritance tax (IHT) residence nil rate band, which excludes the value of your main home up to £175,000—or double that for married couples.
Why primary residences are in the spotlight
The UK housing market has created significant paper wealth for many households, particularly in London and the South East, where property prices have surged over decades.
Policymakers face a dilemma. On one hand, homeownership is a cornerstone of household financial security and remains politically sensitive. On the other, exempting gains on high-value homes means substantial untaxed wealth accumulation—something some argue undermines tax fairness.
Speculation suggests that any reform would be carefully targeted, perhaps applying only to properties above a certain threshold. However, nothing has been confirmed, and any changes would be politically fraught given the millions of households affected.
Why so many tax ideas are circulating
The current flurry of floated reforms goes beyond housing. The Government has been trailing possible adjustments across the tax system—from inheritance tax to pensions. This pattern reflects both political signalling and the scale of fiscal pressure facing the Treasury.
The Autumn Budget is expected to be one of the most challenging in recent years. Sluggish growth, stubbornly high public borrowing, and the need to fund public services all constrain the Chancellor’s room for manoeuvre.
Floating trial ‘balloons’ in advance allows the Government to test public reaction, manage expectations, and potentially shift attention away from other unpopular measures. It also helps soften the ground for difficult decisions that may be announced in the Budget itself.
The wider economic context
The backdrop is a difficult macroeconomic environment. UK growth remains muted, inflation is rising again, and household budgets are still under strain. The Government’s debt servicing costs are at historically high levels. Global uncertainty—from energy markets to geopolitical tensions—further complicates policymaking.
Against this setting, the Treasury is under pressure to raise revenue in ways that appear both fair and economically efficient. That is why ideas such as taxing gains on high-value homes are gaining attention, even if implementation would be politically controversial.
What it means for homeowners and investors
For homeowners and investors, the key message is not to make financial decisions based on speculation. Governments often float ideas that never make it into law or that change substantially before implementation. Acting prematurely could leave you worse off.
It is wise to review your overall financial plan in light of potential tax changes—but avoid knee-jerk reactions.
Speaking to a regulated financial planner can help you assess your position properly, stress-test your plans against different scenarios, and ensure your decisions align with long-term goals rather than short-term headlines.